Risk Management Five Steps in Risk Management Identify riskIdentify risk Evaluate riskEvaluate risk Select methods to manage riskSelect methods to manage risk Implement decisionImplement decision Evaluate and reviewEvaluate and review
Risk Management Methods Risk ControlRisk Control –Risk avoidance –Risk reduction Risk FinancingRisk Financing –Risk transfer (usually insurance) –Risk retention, such as self-msurance
Business Risk and Insurance Planning Types of risk Property - fire, theft and disasterProperty - fire, theft and disaster PersonnelPersonnel –theft –discrimination –competition CustomerCustomer –liability and injury –bad debts
Property Risks Fire and natural disastersFire and natural disasters –Not all natural disasters are insurable –One of the largest costs can be loss of sales and profits –Backups are necessary to Serve customersServe customers Protect informationProtect information
Personnel Risks Theft - use of fidelity bondTheft - use of fidelity bond Discrimination and wrongful dismissalDiscrimination and wrongful dismissal –Consistent policies –Arbitration and appeal procedures Loss of key personnelLoss of key personnel –Key life insurance –Personnel back-up
You Make the Call Situation 3 - p What risks does the firm face? What insurance covers these risks? 2. What insurance would have covered the bombing loss? 3. Would you have recommended the purchase of this insurance coverage?
Insurance Costs Use competitive quotesUse competitive quotes Join insurance poolsJoin insurance pools Set high deductiblesSet high deductibles Investigate insurerInvestigate insurer –Financial health –Claims history
You Make the Call Situation 1 - p Should type of customer influence liability insurance decision? liability insurance decision? 2. How will outcome of current case influence insurance purchase? influence insurance purchase? 3. What are options if insurance coverage is dropped? coverage is dropped?
Fox Manufacturing Case 1. Disaster planning issues 2. Key insurance elements 3. Attributes of insurance companies